Pages

Thursday, August 22, 2013

CNBC — Bitcoin recognized by Germany as "private money"

Virtual currency bitcoin has been recognized by the German Finance Ministry as a "unit of account", meaning it is can be used for tax and trading purposes in the country.

Bitcoin is not classified as e-money or a foreign currency, the Finance Ministry said in a statement, but is rather a financial instrument under German banking rules. It is more akin to "private money" that can be used in "multilateral clearing circles", the Ministry said.

"We should have competition in the production of money. I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction,"said Frank Schaeffler, a member of the German parliament's Finance Committee, who has pushed for legal classification of bitcoins.

"In my opinion the production of money is none of the government's business," Schaeffler said."

Then he has no business taking any of it. Or maybe he means none of the Public Government's business, but would be fine with it if that function were handed over to the Banksters, like just before Weimar flipped into hyperinflation.

"Chase. It's what you do so that we don't have to. Member FDIC (Fraudulent Despots In Control) and the Human 'Race to the Bottom'."

Normally a good 95% of money in circulation is privately produced (though the proportion might a bit lower at the moment as a result of QE). That is, money is produced whenever a private bank makes a loan.

Unfortunately, depositors demand their money be 100% safe, so we have deposit insurance (e.g. FDIC and TBTF subsidies). Now what’s the state or taxpayer doing backing up privately produced money?

Where anyone wants their money to be 100% safe, that’s a reasonable demand, and the state should provide that facility. Indeed it already does in that a wad of $100 bills is safe: it’s highly unlikely to suddenly lose its value. Alternatively, money placed in a money market mutual fund which invests just in short term government debt is near 100% safe.

But deposits in private banks which the bank then lends on to less than entirely credit worthy customers? My attitude is: “stuff that”. It’s not the job of the taxpayer to back that sort of thing.

And you MMTers are such a marvelous help with that by pointing out that the government really does create funny money out of nothing. That simple truth has long been purposefully obscured by government and government schools to hide the looting facilitated by the funny money regime. Normal people who finally understand the process are appalled because they do not have the lust for totalitarianism that apparently afflicts MMTers.

Now in this example, assuming that the new bond purchaser is also a bank whose initial accounting transaction would be a -100 reserves to make up for that last line of TGA -100. To this extant, we would have a net +100 in new bank deposits

Weimar hyperinflation was quelled by application of Austrian principles that lead to very high unemployment and social unrest that led to political instability and the rise of Hitler and the Nazi Party. Wasn't until Hitler adopted a Keynesian-type approach that Germany quickly turned around and became the powerhouse of Europe that cleaned everyone's clock until the Amie's stepped in after Pearl.

I’m referring above strictly to STOCKS (not flows). Meli in contrast seems to get totally confused between stocks and flows. E.g. “current Federal expenditures” looms large in his thinking. That’s a flow, not a stock.

Also he seems to think that because some people like me claim that privately created money makes up 95% or so of the stock of money, that therefor we claim that that 95% DOMINATES. He says “Where do these claims regarding credit domination of the system come from?”

Speaking for myself, I make no such claim. Indeed, I go along with the idea that I think most MMTers adhere to, namely that central bank created money is dominant in that it is what MMTers call a “net financial asset”. Put that another way, the amount of privately created money is determined by the desire of the private sector to do business. And that idea is born out by the figures for the UK. That is, prior to the crunch, commercial banks were lending money into existence to fund house purchases like there was no tomorrow, and the money supply figures reflected this. In contrast, over the last three years, commercial banks have hardly created any new money.